Press Release from 2025-06-27 / Group, KfW Research
KfW Research: USA national debt threatens to rise more strongly than anticipated
- KfW simulation: debt-ratio could exceed 170 per cent of GDP
- Rising interest costs combined with growing spending harbours considerable risks
- Without targeted countermeasures, the US government will see its fiscal leeway continue to narrow
If the USA fails to take countermeasures, like raising taxes or cutting spending, it could find itself in a much stronger debt spiral than previously anticipated. Assuming an annual deficit increase of 10 per cent, while interest rates rise by only 0.1 percentage point a year, it is not unlikely that the national debt could top 170 per cent of gross domestic product (GDP) within ten years. Even if the national deficit were to rise by only 5 per cent a year, while interest rates rose by 0.1 percentage points a year, the debt-to-GDP ratio would climb to over 150. These are the findings of simulations run by KfW Research.
In particular the interplay between rising interest costs and growing spending harbours considerable risks. Higher spending on interest reduces the government’s budgetary leeway and, in conjunction with rising spending, magnifies the dynamics of the debt ratio. The USA’s national debt currently stands at 120 per cent of GDP. This is well above the international average of 93.8 per cent.
The USA’s budget deficit has become a permanent structural deficit, which will remain unchanged or worsen unless targeted countermeasures are taken. Proposals like President Donald Trump’s ‘Big Beautiful Bill Act’ with its long-term tax cuts seem likely to further aggravate the structural deficit.
Even if measures of this sort could generate short-term economic growth, they harbour the long-term risk of the USA arriving at a point where their debt is no longer sustainable.
“If market confidence wanes, a scenario could be set in motion with capital flowing out of the country, risk premiums rising and a dangerous interest rate/debt spiral,”
says Dr Dirk Schumacher, KfW Chief Economist.
“The crucial factor will be whether political leaders in the US have the courage to take fiscally responsible action over the next few years. The central challenge in the years to come will be finding a balance between investment, confidence and fiscal solidity.”
You can find the complete study at Focus on Economics | KfW (in German)
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